At times controversial, China’s anti-monopoly law has played an increasingly vital role in shaping the Chinese market and determining global transactions.

The law drafting started in 1994, was issued in 2007, and finally implemented in 2008. Its position has been increased significantly over the past eight years.

Big foreign corporate names have cumulatively come to China’s regulators’ radar, from the block of Coca-Cola’s bid for China’s Huiyuan, to launching an investigation into Microsoft for abuse of market dominance power, to the record-setting $10 billion fine of Qualcomm.

Besides, local Chinese companies are equally vulnerable. A pharmaceuticals company in Chongqing has become the first company in the history of antitrust enforcement in China to be penalized for refusing to deal. And well known state-owned liquor distiller and producer Kweichow Moutai and Wuliangye Yibin were fined RMB 247 million ($39.5 million) and RMB 202 million ($32.3 million), respectively, for resale price maintenance.

“I founded an anti-trust team after China first implemented the law. Back then, people feared that the law was like a vase and we would not have a decent number of clients,” Janet Hui, a Beijing based anti-trust partner with JunHe told ALB. “China’s Ministry of Commerce (MOFCOM) blocked the Coca-cola bid for Huiyuan one year later. Then we all knew China is serious.”

According to the latest data released by the Anjie Law Firm, the anti-trust caseload of MOFCOM in 2015 has considerably increased compared with 2014. In 2015, MOFCOM accepted 338 filings for review, up 37 per cent from 2014’s 246. Also, MOFCOM closed 312 cases in 2015, up 27 per cent from 2014.

By March 31 this year, MOFCOM has closed 1385 cases, approved 1357, conditionally cleared 26 cases, and blocked two mergers.

“I would say China’s anti-trust law enforcement has developed way faster than the west in its initial eight years, especially with so few people on so many cases” Hui said. Though problems remain, improvements were equally self-explanatory.

One notable example: MOFCOM has made it easier for companies to plan and execute mergers in 2014, The regulator took an average 26 days to approve deals that were filed under the new simple case procedure, and reducing legal costs by up to 40 per cent to about US$80,000 on average for simple cases, according to law firm Norton Rose Fulbright’s data analysis.

THE DIDI-UBER TEST

The anti-monopoly law was brought to the public sphere again this July after China’s taxi-hailing giants Didi Chuxing announced its acquisition of Uber’s operations.

The newly created $35 billion ride-sharing juggernaut will hold sway over 90 per cent of the market, without both parties reporting the deal to MOFCOM. Ministry spokesman Shen Danyang told reporters on 2 August that the merger “cannot move on” if Uber and DIdi fail to file a formal application.

The merger sparked a public concern, with a number of users of the APP voicing their concerns online that they will not have more options hailing the cabs from now on.

Though MOFCOM has shown its stance, it did not say the regulators will voluntarily investigate the case. One critical reason according to legal experts is concerning the variable interest entity structure, or VIE, which is widely used by China’s internet giants.

To put it in basic terms, VIEs are used by those registered abroad, but operated in China. For example, companies like Baidu and SIna.com fall into this category.

China’s authorities have not publicly acknowledged the legitimacy of the structure. “No one asked you to remove the structure; but no one has legalized the structure either, once the MOFCOM has intervened, it would have to deal with a structure in the gray area first, which would be a big headache,” a lawyer with a knowledge of the matters said.

The merger would be a test for China’s anti-monopoly law enforcement. Approval from MOFCOM is typically needed for both parties with more than 400 million yuan in revenue per year. If one merging party did not meet the 400 million revenue threshold, they could skip the application.

Didi’s reason to skirt the application is simple: the revenue of Uber China definitely fell short of the amount. And besides, the approval process could be time-consuming.

Didi-Uber’s case is not alone in China’s vibrant merger market. A spate of technology firms have passed the mergers without applications, and free from incidents:

Meituan and Dianping were able to merge in group buying and food, Ganji.com and 58.com combined in the classified ads business.

Though a legal process would be invoked, the odds are slim that regulatory bodies would nix such a high-profile deal. “It is a hard case. It’s inappropriate to block it, but would cause monopoly if it is approved. I think the regulatory body is likely to approve the case with conditions,” one senior anti-trust lawyer told ALB on the condition of anonymity.

A TALE OF THREE ENFORCERS

In China, three government branches have their hands on anti-monopoly oversights.

At times confusing, the three enforcers, the Ministry of Commerce (MOFCOM), the State Administration for Industry and Commerce (SAIC), and the National Development and Reform Commission (NDRC) have different roles.

MOFCOM is mainly working on mergers and acquisitions, responsible for antitrust reviews in connection with concentration of undertaking.

NDRC handles the pricing of everything from gasoline and natural gas to drugs and electricity. It primarily tackles instances of cartels and abuse of prince-fixing dominance.

SAIC is responsible for the raid on Microsoft’s offices last summer. Like the NDRC, it also tackles cartels and abuse of dominance but only those unrelated to pricing.

“MOFCOM’s role is clearer and not overlapping with the other two, as it is focusing on merger control and concentration undertaking ” Mabel Liu, a counsel with East & Concord told ALB. “At times, NDRC and SAIC’s roles are conflicting, as you can see price-related and non-price related issues usually appear in most cases. It is hard to put them apart.”

In this case, Liu said it is possible for a company to receive double penalties from NDRC and SAIC differently and respectively, causing significant policy uncertainties for companies.

Among the three, MOFCOM gets the “thumbs-up” from lawyers who tend to regard the ministry as the most professional enforcer, open to engagement and dialogue, and more consistent in its application of the law.

Still, the need for three domestic regulators all with over-lapping jurisdiction and confusion this can cause was questioned, as most countries or jurisdictions have only one independent anti-trust enforcer.

“Talking about room for improvement, I would say it is necessary to combine the three into one, and make it independent from other regulatory bodies. The debate has been ongoing long, I think the possibility is high,” Liu said.

IN INTERVIEW COMMENT FROM YAO KEFENG ON THIS PHENOMENON

ALB: Why some mergers with bigger industry impact, such as the ones between Didi Dache and Kuaidi Dache, between Youku and Tudou and between Dianping and Meituan, have not been said of being subject to anti-monopoly investigations?

Yao Kefeng, DHH Law Firm:

For a concentration of business operators to be subject to anti-monopoly investigation, the transaction needs to meet relevant thresholds under the Anti-monopoly Law and the Provisions of the State Council on the Application Thresholds for Concentration of Business Operators.

The Anti-monopoly Law stipulates that a business operator may be deemed as having a dominant market position if its market share reaches one-half on the relevant market or if two business operators have a combined market share of two-thirds on the relevant market.

Pursuant to the Provisions of the State Council on the Application Thresholds for Concen­tration of Business Operators, if the business operators participating in a concentration have a combined turnover of more than RMB two billion in Mainland China in the past fiscal year and at least two of them each have a turnover of more than RMB 400 million in the Mainland in the past fiscal year, a filing must be made to the competent commerce department of the State Council in advance. No such concentration may be implemented without a filing.

In calculating business turnover, the actual situations in special industries or fields such as banking, insurance, securities and futures shall be taken into account. Specific measures in this regard shall be formulated by the competent commerce department of the State Council in conjunction with its other relevant departments.

With respect to the Didi-Kuaidi merger, I personally believe filing is required. The merger has reached the thresholds for filing in terms of both turnover and share on the ride-hailing market.

On the other hand, in the previous merger between Youku and Tudou, the two com­panies have not reached the threshold for filing as required by China’s anti-monopoly regulations in terms of their combined revenue during the period of merger. Additionally, the two platforms continue to operate independently following the merger, with Youku sticking to its original focus on providing overall and comprehensive contents, and Tudou following the social media-focused path. Therefore, their merger does not involve the issue of filing for concentration of business operators.

Filing is also required for the merger between Dianping and Meituan. Meituan’s turn­over reached RMB 46 billion in 2014, while Dianping’s projected turnover for 2015 is RMB 70 billion. In addition, Dianping and Meituan jointly control a market share of over 80% in the group-buying market. Therefore, their concentration has reached the filing thresh­olds as required by the Anti-monopoly Law, and the two companies should apply for ap­proval to the Ministry of Commerce (“MOFCOM”) which is in charge of reviewing the concentration of business operators. However, neither Meituan nor Dianping has made a filing to the MOFCOM yet, and the MOFCOM has so far not publicly disclosed whether an investigation has been opened for this transaction. Though Meituan-Dianping enjoys a combined market share of 80% on the relevant market, that does not necessarily mean that it has a dominant market position. We can see this from the protracted war between Tencent and Qihoo 360: although Tencent boasts a market share of more than 80% in the instant messaging market, the court ruled that Tencent does not have market domi­nance.